Telefonica wins Telecom Italia stake

Spanish carrier Telefonica became the largest shareholder in Telecom Italia over the weekend, as part of a Eur2.3bn buyout of Italian tyre company Pirelli.

On Sunday, Pirelli and Edizione (Benetton Group) agreed to sell their stakes in Olimpia, the principal shareholder in Telecom Italia, to a consortium made up of Telefonica, insurance company Generali, investment banks Mediobanca and Intesa Sanpaolo, and Benetton, which is partially reinvesting in the consortium.

The consortium, in which Telefonica holds 42.3 per cent of the shares, has a 23.6 per cent holding in Telecom Italia – 18 per cent indirectly through Olimpia and 5.6 per cent directly – making it the largest shareholder in the Italian operator.

Generali will hold 28.1 per cent, Mediobanca will hold 10.7 per cent, Intesa Sanpaolo will hold 10.7 per cent and Benetton will hold 8.2 per cent.

The deal allows Telefonica to place two members on Telecom Italia’s board, although the Spanish operator is expected to abstain from participating and voting in meetings on business decisions related to countries in which both companies have a presence.

Telefonica and Telecom Italia said they also “foresee the generation of synergies which would give rise to costs savings for both companies”.

Last month, for the second consecutive year, Telefonica reported an annual net earnings increase of 40 per cent. It is the largest operator in the world by customers outside China.

2006 was a massive 12 months for the multifaceted operator, a year in which it consolidated its business operations integrating O2 and Telefonica Telecom, and restructured its business portfolio geographically to bring its fixed and mobile activities together leading to the creation of three regional business units across19 countries: Telefonica Spain, Telefonica Europe and Telefonica Latin America.

Latin America accounted for the lion’s share of Telefonica’s subscriber acquisitions in 2006, contributing 83 per cent to customer base growth reaching 83.3 million clients as of December 2006, up 18.1 per cent on 2005, helping to generate revenues of Eur9.54m, up 14.2 per cent on 2005.

Subscriber growth in Latin America may well be outstripping growth in Europe but the carrier’s European operations are still yielding far higher revenue figures. Telefonica de Espana contributed Eur11.75m to the group, while Telefonica O2 accounted for Eur13.16m in 2006.

Stefano Nicoletti, principal analyst at Ovum, said that the deal will allow Telefonica to strengthen its position in South America, particularly in Brazil where Telecom Italia operates through TIM Brazil.

“The deal comes just after the Italian government has agreed to further empower the communication authority AGCOM to implement a functional separation of the Telecom Italia network from the services and other functions in order to protect competition and alternative providers. Separation will take sometime before being implemented,” Nicoletti said.

“The new ownership needs to now concentrate more on the industrial plan that Telecom Italia badly needs to carry out properly, and much less on the financial control,” he added.